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SPLASH PALACE BUSINESS CASE & IMPACT ASSESSMENT BUSINESS CASE EVALUATION FOR ESTABLISHING A FITNESS GYM AT SPLASH PALACE AND THE ANTICIPATED IMPACT ON EXISTING PROVIDERS APRIL 2016 Impact Consulting & Accounting | www.impactconsulting.co.nz | April 2016 1 Contact Details: Impact Consulting & Accounting Ltd (03) 477 8777 www.impactconsulting.co.nz [email protected] Impact Consulting & Accounting | www.impactconsulting.co.nz | April 2016 2 1 Executive Summary Invercargill City Council has a number of aspirational goals for their community as a whole. Two core objectives of a healthy vibrant community, are more people being active, with facilities that meet the needs of the community. With a view towards developing and maintain facilities infrastructure as economically as possible, this report addresses the viability of including a fitness gym as part of a wider pool foyer and changing room upgrade, and assesses the impact on existing fitness gym providers. The pool gym will have a focus on entry level programmes, rather than the level of specialist services offered by existing facilities. The brief given for this project requested an impartial assessment of the impact of the proposed gym facility on existing business. BUSINESS CASE From a financial and demand perspective this project is deemed viable. Without the proposed gym, the much needed redevelopment pool changing and reception facilities would cost $1.34M and would be entirely rate payer funded. Inclusion of the proposed gym would increase the project capital cost to $2.14M and is projected to enable the project as a whole to be rates-neutral or self-funding. Research indicates there is sufficient demand to ensure that the proposed facility will cover operational costs, as well as the debt servicing for the redevelopment. Research identified that although new gyms have opened in Invercargill since the original project was submitted to Council, there is still significant demand for a facility of this nature from people who do not currently attend a gym. The proposed gym will act as a gateway facility for the industry as a whole. As the facility will only offer swim + gym memberships, becoming a member of the proposed pool gym would only make financial sense for someone who already swims. IMPACT ON EXISTING GYMS As part of this project, previous reports and existing materials were reviewed. Detailed submissions from owners of existing gym facilities included in the original project report were reviewed. These submissions are considered to be complete and well considered and have helped to inform the research undertaken. These owners were not directly contacted as part of this particular investigation, due to the project brief requesting an impartial assessment of impact. An impartial research outcome was deemed to be best achieved via analysis of the existing Splash Palace membership, paired with an on-site survey to give an independent measure of demand, current gym attendance and the resulting impact. Research based membership projections indicate both direct and indirect impacts on existing gyms. The collective direct impact on existing gyms in Invercargill is projected to be 189 members of existing facilities moving to the new gym. This represents 6.3% of total membership over all facilities. Research projections indicate that only 47% of new demand (from people who do not currently go to gyms) could be realistically cater for. Meaning a net gain for the industry as a whole. Establishment of a referral system to redirect surplus demand and people with specialist training requirements to existing providers will lift the overall level of gym activity in the city. Impact Consulting & Accounting | www.impactconsulting.co.nz | April 2016 3 RESULTS SUMMARY The research and report is broken into several segments in order to address key questions in a robust and logical manner. Key findings in each segment are briefly noted below, please see relevant report sections, results summary and recommendations for more details. Note: As with any projections these figures have been calculated with the best available information at time of publication and should be evaluated in conjunction with advice from the relevant Invercargill City Council and Venture Southland teams. Site based research is considered robust with 742 responses in total a 95% confidence level and margin of error of +/- 6%. THE FINDINGS OF THIS INVESTIGATION INDICATED THE FOLLOWING: Section 4: Market Position and Pricing 1) The proposed pricing is deemed to be fair based on current market rates, will not undercut existing providers. The projected membership levels are considered to be achievable in line with national averages for similar facilities. Section 5: Research 1) The site is considered accessible to all parts of Invercargill and by people of all income levels. 2) The pool plays a role in drawing visitors to the city, with 26% of members coming from outside the city, thus the proposed facility will service a wider catchment than existing gyms. 3) The pool has strong connections with many specific communities of need and will assist in meeting their requirements, including injury rehabilitation services, elderly care services and medical organisations. 4) There is an unmet demand. 5) The proposed gym will act as a gateway facility, appealing to people who don’t currently go to a gym. 6) The required number of full members to make the facility financially sustainable is considered achievable. 7) In the short term there will be a direct impact on existing gyms with an anticipated movement of 6.3% of total members across all providers to the new facility. 8) In the medium to long-term the proposed facility is projected to have a net benefit for the growth of the local fitness industry. Section 6: Gym Capacity 1) The projected membership can be considered realistic based on anticipated demand and the capacity of the proposed gym. 2) Research indicates that the proposed gym will not have capacity to cater for the projected total demand. This will further enhance the ability of the gym to act as a gateway facility. With a referral system in place to redirect surplus demand, this will benefit the local fitness industry as a whole. Section 7: Business Case 1) The proposed facility is projected to be financially sustainable and will significantly enhance the viability of the overall Splash Palace renovations. 2) A first year loss is projected due to equipment purchases. If these were capitalised as part of the construction and fit out, the gym is projected to cover all its own operational costs and the majority of debt servicing requirements for the project as a whole within its first year of operation. Impact Consulting & Accounting | www.impactconsulting.co.nz | April 2016 4 2 Contents 1 Executive Summary .................................................................................................................................... 3 2 Contents ..................................................................................................................................................... 5 3 Introduction ............................................................................................................................................... 6 3.1 Introduction ...................................................................................................................................... 6 3.2 Background and need for additional assessment ............................................................................. 6 3.3 Project Objectives ............................................................................................................................. 7 4 Market Position and Pricing ....................................................................................................................... 8 4.1 National Context ............................................................................................................................... 8 4.2 Sample of NZ Facilities Membership ................................................................................................. 8 4.3 Sample of NZ Facilities Membership Pricing ..................................................................................... 9 4.4 Membership Conditions / Inclusions ................................................................................................ 9 4.5 Fitness Centre Market Rates ........................................................................................................... 10 4.6 Assessment of proposed pricing comparative to market ............................................................... 10 5 Research ................................................................................................................................................... 11 5.1 Existing Splash Palace Membership Analysis .................................................................................. 11 5.2 Site Based Quantitative Research ................................................................................................... 15 5.3 Survey Results ................................................................................................................................. 15 5.4 Respondent Age Group Breakdown ................................................................................................ 17 5.5 Fitness Gym Usage Projections ....................................................................................................... 18 5.6 Survey
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